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| PART I—FINANCIAL INFORMATION | |
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| Item 1. | Financial Statements (Unaudited) | 7 |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 47 |
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 67 |
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| Item 4. | Controls and Procedures | 68 |
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| PART II—OTHER INFORMATION | | |
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| Item 1. | Legal Proceedings | 68 |
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| Item 1A. | Risk Factors | 68 |
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 70 |
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| Item 3. | Defaults Upon Senior Securities | 71 |
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| Item 4. | Mine Safety Disclosures | 71 |
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| Item 5. | Other Information | 71 |
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| Item 6. | Exhibits | 71 |
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GLOSSARY OF CERTAIN TERMS
The terms and abbreviations defined in this section are used throughout this quarterly report.AMI. Areas of Mutual InterestARO. Asset Retirement ObligationASC. Accounting Standards CodificationASU. Accounting Standards UpdateAV Farms. AV Farms, LP BRR. Black River RanchC&A. C&A Rollover Company, LLCCODM. Chief Operating Decision MakerE&P. Exploration and ProductionEBITDA. Earnings before Interest, Taxes, Depreciation and AmortizationFCF. Free Cash FlowGAAP. Generally Accepted Accounting PrinciplesGeneses. Geneses Water, L.P.Headwall. Headwall I LLCLPA. Limited Partnership AgreementMidCon. MidcontinentMVC. Minimum Volume CommitmentNOLs. Net Operating LossesOPEC/OPEC+. Organization of the Petroleum Exporting Countries (+ allies)Peak. Peak Rentals HoldCo, LLC (together with its subsidiaries)Pilot Water. Pilot Water Solutions LLC (together with its subsidiaries)PSU. Performance Share UnitROA. Return on assetsROFR. Right of First RefusalROW. Right-of-waySEC. Securities and Exchange CommissionSelect LLC. Select Water Solutions, LLCSelect Holdings. Select Water Holdings LLCSES Holdings. SES Holdings, LLCSES Holdings LLC Agreement. The Eighth Amended and Restated Limited Liability Company Agreement of SES HoldingsSES Holdings LLC Units. Common units in SES HoldingsSelect Inc. Select Water Solutions, Inc.SOFR. Secured Overnight Financing RateSWD. Saltwater Disposal WellSWR. Select Water Reuse, LLCThe Exchange Act. Securities Exchange Act of 1934, as amendedThe Securities Act. Securities Act of 1933, as amendedTRAs. Tax Receivable AgreementsTSR. Total Shareholder ReturnU.S. United States of AmericaVIE. Variable Interest EntityWTI. West Texas Intermediate
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “preliminary,” “forecast,” and similar expressions or variations are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K, in this Quarterly Report and those set forth from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.
Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
| ● | the effects and benefits of the Pilot Water Acquisition (as defined herein), including any anticipated operation or corporate synergies, our ability to integrate operations and the anticipated impact of the Pilot Water Acquisition on our results of operations, financial position, growth opportunities and competitive position; |
| ● | the amount of any cash true-up payment we may be required to make in respect of the equity consideration if the trading price of our Class A common stock declines following the closing of the Pilot Water Acquisition, and the amount of any contingent payment that becomes payable upon the satisfaction of certain operational milestones; |
| ● | global economic distress, including that resulting from the sustained Russia-Ukraine war and related economic sanctions, instability and continued hostilities in the Middle East and elsewhere, including military conflict involving Iran, instability in Venezuela, economic uncertainty as a result of changing trade policies, disruptions in global oil and gas markets and inflation and high interest rates, each of which may decrease demand for oil and natural gas or contribute to volatility in the prices for oil and natural gas, which may decrease demand for our services; |
| ● | actions taken by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “OPEC+”) with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with announced supply limitations, which may be exacerbated by military conflict in the Middle East involving Iran and the resumption of sales of previously sanctioned oil from Venezuela and Russia; |
| ● | impacts related to changing United States (“U.S.”) and foreign trade policies, including increased trade restrictions or tariffs, the impact of changes in diplomatic and trade relations, and the results of countermeasures and any tariff mitigation initiatives; |
| ● | changes in global political, regulatory or economic conditions, generally, including as a result of the fall 2026 United States midterm elections and any resultant political, regulatory and economic uncertainty, including potential changes in regulatory policies, the rate of inflation and potential economic recession; |
| ● | changes in safety, health, environmental and other governmental policy and regulation; |
| ● | the enactment or promulgation of new laws or regulations or changes or modifications in existing laws, regulations, rules or governmental policies with respect to taxation; |
| ● | the level of capital spending and access to capital markets by oil and gas companies in response to changes in commodity prices or reduced demand; |
| ● | the impact of central bank policy actions and disruptions in the banking industry and capital markets; |
| ● | the potential deterioration of our customers’ financial condition, including defaults resulting from actual or potential insolvencies; |
| ● | the degree to which consolidation among our customers may affect spending on U.S. drilling and completions, including the recent consolidation in the Permian Basin; |
| ● | trends and volatility in oil and gas prices, and our ability to manage through such volatility; |
| ● | the impact of current and future laws, rulings, governmental regulations and policies, including those related to accessing water, disposing of wastewater, transferring produced water, interstate freshwater and produced water transfer, chemicals, carbon pricing, pipeline construction, emissions, hydraulic fracturing, leasing, permitting or drilling on federal lands and various other environmental matters; |
| ● | the ability to source certain raw materials and other critical components or manufactured products globally on a timely basis from economically advantaged sources, including any delays and/or supply chain disruptions; |
| ● | regional impacts to our business, including our key infrastructure assets within the Permian Basin, the Bakken, and the Haynesville regions; |
| ● | capacity constraints on regional oil, natural gas and water gathering, processing and pipeline systems that result in a slowdown or delay in drilling and completion activity, and thus a decrease in the demand for our services in our core markets; |
| ● | the impact of regulatory and related policy actions by federal, state and/or local governments, such as the Inflation Reduction Act of 2022, which may negatively impact the future production of oil and gas in the U.S., thereby reducing demand for our services; |
| ● | our ability to hire and retain key management and employees, including skilled labor; |
| ● | our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms, or at all; |
| ● | our health, safety and environmental performance; |
| ● | the impact of competition on our operations; |
| ● | the degree to which our Exploration and Production (“E&P”) customers may elect to operate their water-management services in-house rather than source these services from companies like us; |
| ● | our level of indebtedness and our ability to comply with covenants contained in our current or future debt instruments; |
| ● | delays or restrictions in obtaining permits by us or our customers; |
| ● | constraints in supply or availability of equipment used in our business; |
| ● | the impact of advances or changes in well-completion technologies or practices that result in reduced demand for our services, either on a volumetric or time basis; |
| ● | acts of terrorism, war or political or civil unrest in the U.S. or elsewhere, such as the Russia-Ukraine war, the instability and continued hostilities in the Middle East and elsewhere, including military conflict involving Iran and any potential instability in Venezuela; |
| ● | information technology failures or cyberattacks; |
| ● | accidents, weather, natural disasters or other events affecting our business; and |
| ● | the other risks identified in our most recent Annual Report on Form 10-K and under the headings “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II—Item 1A. Risk Factors” in this Quarterly Report. |
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Our future results will depend upon various other risks and uncertainties, including those described under the heading “Part I―Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K and under the heading “Part II―Item 1A. Risk Factors” in this Quarterly Report. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are qualified in their entirety by this cautionary note.
